Payday Lending News

The latest news on payday loans and the payday lending industry from the Center for Responsible Lending.

Bank Regulator Urged to Stop Community Choice Financial Inc., Going Public May 8, From Using Prepaid Card Payday Loans to Evade State LawU.S. Politics Today 03 May 2012The National Consumer Law Center (NCLC) has issued a press release that sounds the alarm on an emerging predatory financial practice: providing payday loans on prepaid cards. Specifically, when Arizona imposed a 36 percent interest rate limit on payday loans in 2010, payday lender CheckSmart dodged the regulation by offering cash advances on prepaid cards issued through Florida-based Urban Trust Bank. It also has started to provide the loans, which bear annual percentage rates of 390 percent and greater, in Ohio -- which in 2008 limited payday interest to no more than 28 percent. NCLC and more than two dozen other consumer groups have responded with a letter to the Office of the Comptroller of the Currency, in which they press the regulator to stop Urban Trust Bank from issuing prepaid cards sold by CheckSmart in Arizona, Ohio, and other states where CheckSmart cannot legally make direct loans. "Prepaid cards and payday loans just don't mix," according to NCLC's Lauren Saunders. "Prepaid cards should be safe alternatives to bank accounts, not vehicles for evading state law with predatory loans that trap people, often those with the least means, in a spiral of debt."

Pesky Fees That Could Surprise You Are Out There, And They Can Add Up In a HurryDetroit Free Press03 May 2012Although most consumers are familiar with annoying fees, many of them often go unnoticed. In Michigan, for example, lenders can charge a 45-cent verification fee for each payday loan transaction verified through a state database that makes sure individual consumers do not take out too many loans at the same time. Failure to repay the loans on time also attracts fees. Payday lenders can charge a returned check fee of $26.88, regardless of whether the loan was for $100 or for $600. "People can get into trouble because this can snowball into a bigger problem," according to Lisa Ross of the Michigan Office of Financial and Insurance Regulation. Some credit unions and banks charge fees of up to $5 for mail returned from an invalid address, so consumers should promptly update their addresses if they move. When buying or selling a home, the average home inspection should run about $350 to $700, but some places will try to charge as much as $1,000. Some scams try to charge individuals $20 to claim a fake sweepstakes prize, a practice that the Federal Trade Commission is cracking down on. There are also fees associated with secured credit cards, such as for raising the credit limit or a processing fee. Consumers looking to buy a car should also watch out for inflated documentation fees.

Payday Loan Limits AdvanceDelaware News Journal02 May 2012Legislation to regulate payday lending in Delaware passed the state House on May 1 and is moving to the Senate, where it has bipartisan backing. If passed, the new law would limit the number of short-term, high-interest loans a borrower can obtain in a 12-month period to five transactions of up to $1,000 each. The proposal also would establish a database in the Banking Commissioner's Office to track the number of payday loans and how they are repaid. Lead sponsor Rep. Helene Keeley (D-Wilmington South) and other House Democrats have tried unsuccessfully to pass a payday lending reform bill for about 12 years. Kent County Republican Sen. Colin Bonini, a co-sponsor of HB 289, said the bill has a good chance in the Senate.

Initiative Organizers Optimistic Issues Will Get on BallotColumbia Daily Tribune (MO)02 May 2012Organizers collecting signatures for petitions to put new payday lending restrictions and minimum-wage requirements on the November ballot say they will submit nearly 300,000 signatures on May 5 -- about three times as many as required -- despite an estimated 5,000 signatures being stolen from a vehicle owned by the executive director of one of the organizers. Assuming that all signatures are deemed valid and the measures go on the ballot on election day, voters will decide whether to cap interest rates on payday loans at 36 percent. They also will cast their ballot for or against a proposal to up the minimum wage to $8.25 per hour.

Dueling Bills Aim to Reform Payday LendingThe Valley Breeze02 May 2012Two bills in Rhode Island's General Assembly could reform check cashing laws there and limit the annual percentage rate charged on payday loans. State law currently allows up to 260 percent annual interest for short-term loans, a practice often called "predatory." Rhode Island is the only state in the Northeast that allows the high-interest loans. Seventeen states plus the District of Columbia have imposed annual rate caps of about 36 percent. The two Rhode Island bills, meanwhile, have stalled in legislative committees. House Bill 7588 would reduce the permitted amount of interest for payday loans to 130 percent annually, but many say the measure does not do enough to protect consumers. Rep. Frank Ferri (D-Warwick) sponsored the other proposal, which would reduce the rate cap to 36 percent. A corresponding bill in the state Senate, S-2307, has 26 signers.

Santa Clara County Supervisors Ban New Payday Loan ShopsMarin Independent Journal (CA)01 May 2012On May 1, supervisors in California's Santa Clara County unanimously approved a ban on new payday loan shops in unincorporated areas. The move came after numerous consumer advocacy groups and the public decried the industry for charging excessive fees and trapping low-income and minority borrowers in a nasty spiral of debt. While the city has just one payday lender on unincorporated land, the ban will remain in place until the county's permanent ordinance takes effect in June. The council is expected to consider ordinances for the industry at an upcoming meeting.

Keep Out Payday Lenders: Pa. Should Not Let Them Prey on Our Most Vulnerable CitizensPittsburgh Post-Gazette30 Apr 2012Under a new bill being introduced in the Pennsylvania Legislature, payday lenders would be able to obtain an exception to the state's Consumer Discount Company Act, allowing previously banned short-term lenders to return to the commonwealth. House Bill 2191 argues that to ensure that consumers do not borrow money from online payday lenders from different states, they should borrow from in-state, regulated lenders. The bill is being touted as a "consumer protection" measure. Industry lobbyists claim that active military families would have special protection, even though federal laws already protect military families from nefarious payday lending activities. While the interest on the proposed bill would be capped at 28 percent, the excessive fees would likely add up to hundreds of percentage points. The bill claims to limit roll-over loans. However, it allows borrowers to take out new loans the very next day. Despite the industry's best efforts, it is clear that the four components that define payday and predatory lending would remain intact: exorbitant rates, short payback periods, balloon payments, and automatic transfers.

Profits Are the Reason for Fees, Not Risk or CostsNew York Times29 Apr 2012Consumer advocates have been warning American consumers to avoid check cashers and payday lenders by placing their money in a bank. However, they are changing their tune as some banks have become just as bad. While overdraft fees have been a problem for a while, now some banks are also making account advances, which are very similar to payday loans. The short-term loans often come with triple-digit annual percentage rates and the ability for the bank to repay itself by taking money out of the consumers' bank account. The trend of banks offering such short-term loans is spreading, leaving vulnerable members of society such as working families and the elderly to pay the price. While the banks claim the fees are due to the risk they must take to lend to consumers with poor or no credit, the loans are incredibly profitable, allowing banks to reap billions in profits every year.

San Jose Planning Commission Approves Payday Lending CurbsSanta Cruz Sentinel26 Apr 2012In California, the San Jose Planning Commission tightened its proposed restrictions on payday lenders after hearing two hours of public testimony. The proposal will be considered on May 15 by city councilors. It calls for a minimum one-quarter-mile distance between payday lending establishments, an increase from the 500-foot restriction originally proposed. Also under the changed proposals, no new payday businesses would be allowed into low-income census tracks. City staff will provide council members with information on how to pursue a cap on the number of payday lenders. Across the state, an increasing number of cities and counties are trying to place restrictions on payday lenders. San Jose currently has 38 payday lending stores.

City Council Votes to Restrict Payday Lender GrowthYour News Now 26 Apr 2012City councilors in Austin, Texas, have approved legislation to limit where payday lenders can open a business. Short-term loan outlets will not be permitted to open within 1,000 feet of another similar business or within 200 feet of an interstate. The decision came after a coalition of Austin faith leaders voiced its support, due to congregants suffering from high interest rates. The Austin Catholic Diocese said about $1 million in charity has gone to Texans who owe a debt to payday lenders.

Credit Union Short-Term Loans a Payday Lending Role Model: CUNACredit Union Times24 Apr 2012The credit union short-term lending model is in line with the Consumer Financial Protection Bureau’s mission of protecting consumers from predatory payday lenders, according to Credit Union National Association (CUNA) assistant general counsel Luke Martone. CUNA presented the position to CFPB as a response to the agency’s January field hearing on payday lending in Alabama. CUNA considers the National Credit Union Administration's Short-Term, Small Amount Loan program a template for responsible payday lending. Under the initiative, credit unions are restricted to principal amounts between $200 and $1,000, six-month maximum terms, application fees of no more than $20, and a restriction against rolling over the loan. State-chartered credit unions are not eligible for the program, though some offer similar programs.

San Jose and Santa Clara County City Leaders Push for Curbs on Payday LendingSanta Cruz Sentinel24 Apr 2012In California, South Bay officials are looking to rein in payday lending. This week, San Jose planners will consider a proposal to bar payday lenders from establishing their businesses in low-income neighborhoods. Next week, Santa Clara County supervisors will decide whether to make permanent a temporary freeze on all new payday lending stores in unincorporated areas. Although many states and the U.S. military are eliminating or restricting payday lending, the California Legislature has allowed the industry to grow. The number of payday storefronts has declined in the state in recent years, but the number of payday loans swelled from 10 million to 12 million between 2006 and 2010 and the number of customers increased from 1.4 million to 1.6 million. Many local communities are trying to amend land-use and zoning laws to make it more difficult for payday loan businesses to set up stores. In San Jose, city leaders are considering measures just short of a total ban. The current proposal stipulates that new payday business applicants would be blocked from moving into low-income neighborhoods but could open elsewhere in the city, staying 500 feet from other payday lending establishments. However, Ginna Green, spokeswoman for the Center for Responsible Lending, argued that the city already has 38 payday shops and that officials should impose stricter measures.

Payday Lenders Up Their Contributions to CandidatesWashington Post19 Apr 2012Battered by negative press and anticipating further scrutiny from the Consumer Financial Protection Bureau (CFPB), the payday loan industry is spending more money on lobbying and political candidates this election cycle. According to the group Citizens for Responsibility and Ethics in Washington (CREW), 11 big payday lenders and the industry's two trade associations hiked their spending on lobbying to $4.5 million last year from $730,000 in 2005. One of the trade groups, the Financial Service Centers of America, relocated its headquarters to Washington in 2011, indicating a growing focus on federal regulation. The top three political recipients of industry money, meanwhile, also are vocal critics of the CFPB: Rep. Jeb Hensarling (R-Texas), chairman of the House Republican Conference; Sen. Richard Shelby (R-Ala.), his party's top-ranked member on the Senate Committee on Banking, Housing, and Urban Affairs; and Rep. Spencer Bachus (R-Ala.), GOP chairman of the House Financial Services Committee. In 2010, the three top recipients of industry money were Democrats, who controlled the House at the time.

Bill Could Allow Payday Lenders Back Into Pa.Pittsburgh Post-Gazette18 Apr 2012A bill introduced in the Pennsylvania House of Representatives would make it legal for out-of-state payday lenders to set up operations in the commonwealth. HB 2191 was introduced by Rep. Chris Ross (R-Chester) and now has the bipartisan support of more than 50 House co-sponsors. Although it does incorporate some consumer protections, the measure essentially would sanction a form of high-interest lending not permitted under current state law. Diane Standaert, legislative counsel for the Center for Responsible Lending, is visiting Pennsylvania to meet with community groups to draw attention to the bill and the risks of trapping low-income consumers in a cycle of high-interest debt. Ross said in a memo that the bill will include "the strongest consumer protections available in other states that regulate the practice." These include limits on loan size, restrictions on fees and interest, upfront disclosures, and limits on the ability to "roll over" loans. Interest rates would be limited to 28 percent on payday loans, but the bill also allows for an origination fee of 10 percent of the principal amount loaned and a $15 "verification fee" on each loan. Standaert said that, for a $300 payday loan due in full in two weeks, that would be the equivalent of an annualized rate of 419 percent. About eight legislators have recently withdrawn their sponsorship of the measure.

Advocates Say U.S. Bank, Wells Fargo Loans Prey on Low-Income BorrowersMinnesota Public Radio17 Apr 2012US Bank and Wells Fargo target low-income customers by charging lofty fees on short-term loans, according to a report by Minnesotans for a Fair Economy. The fees, the group claims, are equal to or even higher than those from traditional payday lenders. Minnesotans for a Fair Economy has asked Wells Fargo and US Bank to discontinue the loans. Currently, customers at US Bank and Wells Fargo can obtain one of these loans if they have a bank account in good standing and receive paychecks, Social Security checks, or other income via direct deposit. Customers can request up to $500 in a cash advance -- which the banks will deduct, plus fees, from the next direct deposit. US Bank charges $2 for every $20 borrowed, a 10-percent fee; while Wells Fargo charges $1.50 for every $20. A US Bank customer would pay $10 in fees for a $100 cash advance. If the loan is paid back in 10 days, the fees equal a 365 percent annual interest rate, the report calculates. A 2011 report by the Center for Responsible Lending found that customers who rely on payday loans are in debt for an average 175 days a year. The banks offer certain limits on these loans; but some consumer advocates say these are ineffective and have called on federal regulators to ban bank payday loans. Banks are not required to follow state regulations that restrict traditional payday lenders.

Report Rips Banks on 'Payday' LoansMinneapolis Star Tribune17 Apr 2012Besides storefront and Internet payday lenders, four major U.S. banks also participate in the fast-cash industry, charging interest rates up to 365 percent, alleges a new report by Minnesotans for a Fair Economy. The banks -- Wells Fargo, Fifth Third, Regions, and U.S. Bank -- sometimes charge even higher fees and interest rates for emergency loans than payday lenders, according to the report, but they use their charters help them avoid the regulation that governs the payday sector. They also have become more aggressive in marketing their products, says Uriah King of the Center for Responsible Lending. Representatives from Wells Fargo and U.S. Bank say the banks do not offer payday lending but do have services called "checking account advances" or "direct deposit advances," available only to people who have checking accounts with them and make regular direct deposits. They claim to charge straightforward fees for these loans and do not calculate an annual percentage rate (APR) on interest. According to Minnesotans for a Fair Economy, a $500 advance repaid over a typical 10-day term would cost $50 at U.S. Bank, the equivalent of an APR of 365 percent, and would cost $37.50 at Wells Fargo, amounting to an APR of 274 percent. State law caps the fees that can be charged on payday loans, depending on the amount. For loans between $350 and $1,000, the limit is 33 percent annual interest plus a $25 administrative fee. Minnesota Attorney General Lori Swanson already has sued eight non-bank Internet payday lenders for charging unlawfully high annual interest rates of up to 782 percent.

Los Altos Moves Against Pay Day Loan OperatorsLos Altos Patch13 Apr 2012The Los Altos, Calif., city council voted unanimously on April 10 to impose an "urgency" ordinance that prevents payday lending and check cashing businesses from opening up in the city for a period of 45 days. There are no businesses of that type currently in Los Altos, nor any requests for new business licenses for payday lenders. However, speakers told the council that a tide of payday lending companies is flowing into California to take advantage of the state's most financially vulnerable. The average payday borrower takes out 10 loans annually -- largely due to the triple-digit loan rates, which set up a cycle in which borrowers who cannot repay a loan before the next payday must take out another loan to cover the first. City staff will compose legislation in the next 45 days and begin to send it through the approval process.

Missouri's Appeal Aims to Preserve Initiative to Cap Payday Loan InterestKansas City Star11 Apr 2012The Missouri secretary of state's office has said it will appeal a judicial ruling that invalidated the summary it drafted for a ballot initiative to limit payday loan interest rates. Cole County Circuit Judge Daniel Green said the summary being circulated was "inadequate" and "likely to deceive petition signers." Additionally, he rejected the cost estimate generated by the office. If the ruling is not overturned, any signatures collected to get the measure on the ballot would be deemed null and void. The Missourians for Responsible Lending are moving forward with the petition campaign in hopes that the signatures collected will count. The secretary of state's office declared that the summary fairly and accurately describes what the measure would do: cap the annual interest rates on payday, car title, and other short-term loans at 36 percent.

East Bay Firm Accused of Illegal Debt Collection Shut DownInside Bay Area 11 Apr 2012A federal court has shuttered, at least for now, a debt collection agency that had callers pose as police officers in order to scare consumers into paying back more than $5 million in payday loans that they had never taken out or had already repaid. Broadway Global Master and In-Arabia Solutions allegedly used India-based call centers to call more than 600,000 phone numbers across America over two years. Representatives threatened people with arrest if they did not pay and fraudulently collected more than $5.2 million, according to a complaint from the Federal Trade Commission (FTC). A temporary restraining order names the two companies as well as their owner, Kirit Patel, as defendants. The FTC's San Francisco office originally filed the complaint, which says that targeted consumers were scammed out of an average $500 each. Defendants violated the Fair Debt Collection Practices Act by misrepresenting themselves as a law enforcement agency, according to the complaint. A judge in Sacramento will decide whether to grant a preliminary injunction before the U.S. District Court for the Eastern District of California. The FTC hopes to make the closures permanent and to pursue refunds for consumers. The Better Business Bureau of Northeast California fielded 13 complaints from customers and hundreds of inquiries about Patel's companies.